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Trustees review fixed‑income structure, direct due diligence on lower‑cost PIMCO share class
Summary
Trustees were briefed on the retirement system’s fixed‑income implementation—two active managers (Dodge & Cox, PIMCO) split the 21% allocation—and asked staff to pursue due diligence on a lower‑fee PIMCO collective investment trust (CIT) share class.
The Mendocino County Board of Retirement spent a substantial portion of its April 15 meeting reviewing the system’s fixed‑income program and managers, ultimately instructing staff to continue due diligence on a lower‑cost PIMCO collective investment trust (CIT) share class.
Consultant and in‑house research staff presented the current structure: fixed income comprises about 21% of the total portfolio and is implemented with two active managers—Dodge & Cox and PIMCO—each roughly one‑half of that allocation. Kellen’s research lead (Dario) told trustees the pairing is intentional: Dodge & Cox pursues excess return largely through bottom‑up corporate credit research and longer holding periods, while PIMCO runs a diversified, macro‑oriented “all‑weather” approach with broader use of duration, securitized credit and derivatives.
Trustees asked about credit allocations, duration, and peer performance; Kellen noted both managers can take opportunistic non‑benchmark exposures (high yield or EM debt) but are governed by contractual limits (explicit below‑investment‑grade caps). Staff highlighted that a PIMCO CIT share class is now available at materially lower fees than the existing mutual‑fund share and recommended additional due diligence before any migration; trustees agreed to pursue that review.
The consultants also discussed broader implementation tradeoffs, including why the board maintains active management in fixed income (historical demonstrated outperformance by core‑plus managers net of typical fees) and cautioned that private credit carries higher expected volatility and operational/illiquidity considerations that do not presently make it an obvious fit for the system’s modest fixed‑income allocation.
Why it matters: Fixed income is the retirement system’s portfolio anchor for liquidity and downside protection; manager choice and fee structure materially affect net returns and risk behavior. A lower‑cost PIMCO vehicle could reduce fees for plan participants if due diligence supports the move.
What’s next: Staff will continue due diligence on the PIMCO CIT share class and return with recommendations and any necessary documents for trustee approval.
